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Paschal Donohoe: Minister for Finance, Public Expenditure and Reform

Interviewed the charming, chatty and firm Minister for Finance in the Department of Finance on a bright Wednesday in late April.

He has just benefited from a profile in the Irish Times which of course likes his supposed toughness, especially when public-sector-pay talks loom, and which quotes a senior Fianna Fáiler praising him as “the cleverest man in the room” (even when Varadkar is in it). It also notes that despite his “Hello, Everybody” manner, “Business and interest groups that come into contact with him leave impressed with his knowledge and command of his brief. These are the traits that other politicians note and envy”. Donohoe is, then, an Irish Times sort of guy.

Arranging the interview was straightforward, and his handlers, particularly Deb Sweeney, efficient and unstuffy. He gave me more time than had been allocated, and a book, ‘The Value of Everything, Making and Taking in the Global Economy’ by Mariana Mazzucato (2018), as I was leaving. He was still engaging about his favourite works of literature as I was in the end ushered down a corridor and out into the sunlight.

Mazzucato, in her book, claims that many advanced western countries, in particular the US and Britain, now confuse those who create value for those who extract it or destroy it, leading to impoverished and unhappy societies, soaring inequality and declining growth. I conclude the gift was well-judged.

On his Political Philosophy…

“My political philosophy is a politics of the very strong centre. I look at the opportunities and chances that I’ve had in life by virtue of the school that I went to and the upbringing that I’ve had. I believe that should be available to everybody in our country. I believe that, in order to make that happen, we need to have an open society and a diverse economy. I want to see an Ireland that is inclusive, that can welcome people and make them feel at home, and I strongly believe in a mixed economy. I believe we need both strong governments and strong markets and I think either on its own cannot achieve what citizens need”.

On his Economic Philosophy…

“My economic philosophy then springs from that. I believe in a resilient and mixed economy. I believe that markets can do some things well and I believe government can do many things well. If you look at the kinds of new economies that are being developed and the new challenges that are developing, we can only respond to them if both the State and markets play their role. We have seen, to the great cost of our citizens in particular, what can happen if markets become unbridled; and we have seen at other times in history what can happen if the State is expected to do everything; and I don’t believe either work.

I believe the global balance needs further shifting at the moment – in favour of the State. I believe that we get the balance about right here in Ireland but I believe that we are going to need to continue to support supranational organisations like the European Union, like the WTO, like the OECD, to help nation states respond back to new challenges like artificial intelligence and to the de-globalisation agenda that is now beginning to develop.

I believe very strongly in equality of opportunity but I’m very conscious at the moment that that credo is being challenged by developments within the market economy – if we keep on encouraging our citizens to believe they have equality of opportunity and then, generation by generation, that equality of opportunity is not realised, it poses very serious questions for citizens regarding how they feel about the State. Because if, from generation to generation, that opportunity is not realised or even offered the prospect of citizens either blaming themselves or the system and the State for not offering that agenda poses really grave challenges for how we organise our liberal democracies. I unfortunately believe some of those risks are beginning to materialise elsewhere at the moment”.

On equality of outcome…

“I think equality of outcome is something that is very, very difficult to achieve because I think it runs against the grain of initiative and individuality that I ultimately believe has a very important role to play in our society as well”.

As to whether equality of opportunity is desirable…

“I think equality of opportunity is more desirable than equality of outcome and certainly in the policies I try to follow and implement in the two jobs I do at the moment it is about trying to realise opportunity. But I’m conscious of the fact that an equality of opportunity agenda doesn’t speak to, or doesn’t help, citizens who are at the margins of our society; and for those citizens a more interventionist approach is necessary on behalf of the State I should say”.

As to whether equality of opportunity can be unfair to the extent that people’s capacity for grasping opportunity is sometimes determined by luck and not entirely a product of effort or initiative…

“And this is why I accompany my support of equality of opportunity with a strong support for the necessary role for an enabling and strong State. The difficulty that the equality of opportunity agenda has is when it runs into the chance of birth or runs into intergenerational inequality, and this is why I believe we need an active and enabling State alongside regulated and flourishing markets.

I would be supporting the interventions that we have at the moment. I do not think that the agenda of positive discrimination is one that can command ongoing support here in Ireland and so this is why I support the State playing a more active role in the management of land, why I support for example property taxes. It’s why I support a a progressive tax code. Because without having those things in place you can’t offer the support that is needed to deliver the funding for an active State”.

On difference in emphasis from Michael Noonan’s…

“As to what’s the difference between myself and Michael Noonan it’s just a difference of emphasis. I think the change of circumstances explains so much of the different things that I’m able to do. I guess two key areas of different emphasis for now would be: I would take a different view in relation to future of the universal social charge. I believe we do need a progressive tax code to ensure fairness in how we tax people and also to fund commitments that we have to our State, towards our citizens, and I also believe in a stronger role for public investment in certain parts of our economy.

I think Michael did an exceptional job when he was here”.

I believe the global balance needs further shifting at the moment – in favour of the State. I believe that we get the balance about right here in Ireland

As to who was the best ever Minister for Finance…

“I’d have to choose two: I believe Michael Noonan managed an existential economic crisis for our country; and the second one would be Ruairi Quinn because what he managed to do at a time when the economy was beginning to grow again is to keep the consensus for a sensible approach to national finances while making steady progress in tax reform and public spending; and I believe both of them offer really important lessons for me given the challenges that I have now”.

As to his other political heroes, nationally and internationally…

“I’d have to look to thinkers about politics as much as practising politicians or previous politicians. I would look for example to Isaiah Berlin who warned against the dangers of extremism and convincing single claims. I think that’s really important for people who believe liberal democracy at the moment. I look to Tim Snyder, historian in America and to Jan-Werner Müller, Professor of Politics at Princeton University, a German political scientist. He’s writing a lot about populism. In relation to politicians I’d look to Denis Healey, of the UK’s Labour Party, who saw political life as a vocation – an act of public service; and of being about choices and trade-offs. That is not a bad thing, it is the essence of politics. His book, ‘The Time of my Life’ in the late 1980s, got me interested in political life. I’ll show you the letters I exchanged with him. Tony Blair. Michael Heseltine. Ken Clarke. Across Europe to Helmut Kohl, President Macron trying to make the case for the strong centre in European politics”.

As to the effect on him of living in Britain…

“Living in England had a huge influence on me actually because number one I think anybody who’s in public life should do lots of things that don’t have anything to do with public life.

I worked in the private sector for as long as I’ve worked in public life and the experience of living in a more multicultural society than Ireland was then had a really really positive effect on me. it was a great experience”.

As to why he joined Fine Gael…

I joined for two reasons. Firstly my local politicians were people like Jim Mitchell and Austin Curry and John Bruton. To this day they were really substantive figures who believed in things and saw politics as a vocation rather than a career. I joined Fine Gael because the idea of the Just Society, which was ascendant at the time, and the concept of having a mixed economy and the challenge of trying to do the right thing in the long run, but standing by the institutions of our State, has always strongly attracted me.

Declan Costello was Fine Gael TD for Dublin Central in the 1960s and I have the ‘Just Society’ over there [he gestures] and many of the speeches that he gave to support our credo within Fine Gael were given in Cabra and Phibsborough where I now live and which I represent. That of course is by chance and serendipity but his kind of thinking – making the case for Europe and trying to make the case for trade, an open economy and an open society – I believe are values that will serve Ireland well in the future.

As to whether this is really different from Fianna Fáil depending on whether they’re in government or opposition and on the state of the economy at a given time…

“I believe the Fianna Fáil philosophy has varied. A key difference is the consistent European outlook, a consistent support for a mixed economy and a longer tem commitment to trying to do the right thing by our State”.

As to whether FF are also strong centrists…

“I think there are individual politicians within Fianna Fáil who would have the same outlook as me but I believe our commitment to that strong centre is stronger than theirs”.

As to whether quality of life is a better measure of a country’s success than the economy and GDP…

“I think it’s an equal measure. I care as much about the number of children that are in a B and B or a hotel as a measure of economic success as I do about what happens to our bond yields. They’re both equal indicators for me”.

As to whether economics is a useful indicator of value or just a token of more substantive things…

“I believe economic sustainability and progress is a prerequisite for what you need to do socially, so yes I believe that economic progress in itself has a value but the greater value of that economic progress can only be achieved if you make a better society. So as Minister for Finance what I have said on a number of occasions is I think we have a recovering economy but we don’t have a healed society, and of course the big challenge for people like me is that journey is always ongoing”.

As to whether the government is using quality- of-life indicators as previous governments started doing…

Yes, quality of life indicators are playing a bigger role in this government than they were able to in the last, primarily because in the last one the economic circumstances were so dire. To give you a concrete example we’re now using concepts of equality and gender-proofing for our budgets.

As to whether they’re really using stringent quality of life indicators across the range, including equal measures for social and environmental as well as economic matters…

“I think in truth they don’t yet have the prominence that economic indicators do because our measurement of social indicators and our track record of using them over many years is not as advanced as it is for economic indicators but I believe we are making good progress on it’.

As to whether growth can continue to be a principal objective of government policy in the long term…

“We have to move to an approach of more sustainable economic growth and more inclusive economic growth. We need economic growth but the economic growth of the future is going to have to be different to the economic growth of our past”.

As to whether climate change will be a constraint on growth…

“I think it’ll be both a constraint and an opportunity”.

As to whether growth can continue long-term to be a headline indicator…

“I believe economic growth will continue to need to be a headline indicator but it needs to be a different form of economic growth to what we would have had in the run-up to 2005 or 2006 and in particular I think later on this year we’re going to have to be more willing to talk about trade-offs within our economy and within our society. If we keep on trying to drive each sector of our economy to the maximum intensity it’s going to create challenges that will be difficult to manage collectively”.

As to whether we’re addressing the environmental agenda, in particular, properly…

“I believe that we haven’t been doing as well in the past as I would have liked and I think we’re trying to make progress on it now; and one of the things I’m particularly proud of is the strong cli- mate-change dimension to our National Development Plan 2040. I believe it is very strong because it is a commitment that myself and the Taoiseach and Denis Naughten have to look at how we attain growth, but a different kind of growth to where we were”.

As to what our long-term economic growth rate is…

“Around 3%”.

As to whether the National Planning Frame- work and National Development Plan get the balance of growth right between Dublin and the rest of the country…

“I believe the policy documents do, by recognising that we want Dublin to grow in line with the country and not faster than the country, that we want all other Cities to grow faster than Dublin and then by calling out a particular role for towns that have less than 10,000 people in them and trying to find different ways of supporting them. But of course our shared challenge is going to be how we turn that into a reality”.

As to whether the implementation measures are strong enough for the National Planning Framework – in particular whether it will be enough, given the unwillingness to actually say ‘No’ to developments, to curtail unsustainable development, particularly sprawl into the hinter-land of Dublin and one-off housing which isn’t expressly envisaged under the plan…

“It’s a really fair question actually and it’s what we really grappled with in this Department for a number of months: about how we can have mechanisms in place to give us a good chance of turning the vision into a reality and that’s why we will be doing two things before the summer that are mechanisms to drive the positives:

The first is that we are going to be putting in place a national land agency. I believe that active land management is a prerequisite to deal with the risks that you were talking about and I believe that we need to do more to rise to that challenge and I’m really committed to do it. And the second one is that we have put in place a set of funds that we’re looking to announce in May that are very sizable, that look to ‘over-reward’ the ideas that make the National Planning Frame- work positive – and make it happen.

So what we’re going to be saying is that if you have an idea that delivers against the National Planning Framework objectives within a City, the State will come in and help you make that happen. Then what we’re saying from the point of view of supporting the fabric of our rural life is if you have an idea that works for how you can make a town a more sustainable place to live in, again the State will step in and work with you. we need to try and make that happen. So we are going to have the traditional constraints in the planning system that you’ll be well familiar with and you’ll also be familiar with the challenges they face.

As to whether there is scope to put more efficient restrictions on particular types of development, in particular one-off housing and sprawl of Dublin…

But as you’ve acknowledged, in the National Planning Framework, the ambition and policy content is there to try and tackle the difficulties we’ve had in the past. And what I’m trying to do now with the resources that are available to me is find ways of better rewarding good practice and also looking at better ideas about how we can manage land particularly land the State owns. And if you go back to the questions that you asked me regarding what does a mixed economy look like earlier on, and how are we willing to back up our views on what a mixed economy looks like, like the approach that I’ve had in relation to stamp duty on commercial property, the approach that I’ve had in relation to ending the step out period in relation to tax relief for land that was bought across certain periods. Now the approaches that I’m going to use in relation to how we manage our land and particularly State-owned land are very tangible examples of the approach that I’m bringing to bear about what does a mixed economic approach looks like for how we manage property in our country and and land in our country more particularly; not to mention the vacant site levy.

As to whether the balance between expenditure on public transport and roads is right…

“Yes”

As to what those percentages are…

Oh my God I‘m going to have to give you the percentages. We will give it to you later on. [The Department does dutifully come back to me confirming that under the Revised Estimates: “Of the combined spend on roads and public transport of €1.62bn provided for 2018, the spend on public transport of €707m amounts to 44% of that spend whilst the spend on roads makes up the other 56%”.]

When we went through this phase in our economic development the last time we prioritised road projects way ahead of public transport projects; and as a former Minister for Transport I know the rationale for road projects in many cases has to be deliver road safety. There are some connectivity challenges that we face, that roads would be the best way of responding back to. But we have to support the Metro project, we have to support the expansion of Luas, and we have to look at new ways of delivering better bus solutions in Cities apart from Dublin.And we’re going to make this happen.

As to whether Metrolink will survive proper cost-benefit analysis…

“Yes”

As to whether there is a danger that greater stringency is applied to the cost benefit analysis of public transportation than of roads which don’t ever seem to be subjected…

“I am satisfied that the approach that we’re going to have on the public-spending code would be appropriate for both roads and public transport and I am pleased that for the road projects that we indicated in Ireland 2040 most of the reaction could see the policy rationale for what we are doing”.

As to whether we’ve overused PPPs…

“We haven’t overused them in the past because at the time the rationale for PPPs was a consequence of the economic circumstances that we were in; and I believe we’re going to have to have a careful look at them in the future. My approach to PPPs is that we have to examine them on a case by case basis. When it makes sense for the State to use its borrowing capacity to directly fund projects or to use the tax that we raise to directly fund projects we should do that”.

As to whether if it is legitimate to tax to increase fairness in society, it is also legitimate to tax for other worthy goals, like environmentalism, health and quality of life – across the board; and whether he sees future areas for such taxes – taxing ‘bads’ not ‘goods’…

“Not only philosophically but economically it does and this is why the sugar tax I am really pleased now that we’ve got European commission agreement with it only yesterday. It is a measure that I think there was some expectation that I might back away from in the budget last year. But I am absolutely committed to making it happen.

I would point to the decision that I had made on stamp duty of commercial property that was a recognition to me that taxation has a role and budgetary policy that stretches beyond raising resources. I’m not going to comment on any of the future areas where I might do it as it might give an indication of what I might do in the next budget which would have all kinds of consequences that I would need to avoid”.

As to whether the public finances are in good shape…

“In general, our public finances are in good shape, we are broadly balancing our books, our debt is coming down, pubic expenditure has grown at a rate that is sustainable but you can never, ever ever take it for granted. The consequences for the politics of the centre of entering the next global economic shock while we are still dealing with the legacy of the last one would be very grave. And that’s why I am being very careful with decisions I am making at the moment.

As to whether our taxation system is fair…

“Yes. [when prompted] My recollection is that our Gini coefficient ratings are improving”.

As to whether we should have property taxes on the scale of Europe and the US…

“Every country has the right to tax different assets differently. We went through a period for so long when we didn’t have any form of property taxation at all and what I’m committed to do now is retaining the system that we have but giving confidence to people in the future that it will be fair.

I don’t think there’s a particular problem in Ireland with property taxes: I think it’s a general difficulty finding sustainable ways of taxing wealth. Which is why I’m committed to retaining a local property tax.

As to whether our corporate tax regime is ethical…

“Yes”[Silence]. I believe it is ethical. Competitiveness should not just be the prerogative of big countries. Smaller countries have the right to look at how we can offer competitive environments for businesses to be formed in our country. But taxation is only part of our offering and we offer so many other assets and qualities too. Ireland does not get the credit that we deserve for the changes that we have made in corporate tax reform: the gradual phasing out and then elimination of the Double Irish, what we have done with the elimination of stateless companies from our tax code, and then the work that we have done to move our tax code into line and to OECD best practice”.

As to when we will have dealt with the housing and homelessness crises…

“I believe the reduction in the number of people sleeping rough by 40% in the latest figures shows the progress that we are making but it is progress that we have to keep at. It is my ambition that across this year and as we move into 2019 you’ll see housing output continue to increase and you’ll see further evidence of our commitment to dealing with the tragedy of homelessness”.

As to whether we’ve inadequate indicators for our rate of house building…

“I have a lot of evidence in a lot of support for the indicators in relation to how we measure house building. And in fact I’m somewhat concerned now at the way in which objective indicators of housing progress are being dismissed as spin”.

As to whether we are focusing enough on the quality of the housing…

“Yes I believe we are and I believe the change we have made in building and planning regulations continues to maintain the balance between quality accommodation and providing more accommodation”.

As to whether our banks are properly regulated…

“Yes. If you look at the impact of the Central Bank legislation of 2010 and 2013, the radically improved regulatory environment we have due to that legislation to the single supervisory mechanism we now have and the significantly increased levels of capital that our banks have to hold mean that our banks are significantly more regulated than they were in the past”.

As to whether white-collar criminal penalties are adequate…

“Yes they are, but we continue to have work to do in this area and this is evidence by the work that Minister Flanagan brought forward yesterday when he talked about enhanced penalties in relation to money laundering”.

As to whether Jonathan Sugarman’s concerns about bank liquidity were properly analysed…

“Yes I do”.

As to whether he wants to say anything else about that…

“No”.

As to whether there is scope for more competition in the banking sector particular for community banking and public banking…

“Yes, I think there is a role for the community banking sector within Ireland but any new forms of banking our community banking have to be able to show what they can do differently to our credit union movement. That’s the case that needs to be made.

In fact myself and the Department of Community Affairs will be publishing a response to the application by Sparkassen [for a licence] in the next few weeks”.

As to whether the public sector should be prioritised for pay increases when they are above averagely paid already…

“This morning I made the point that the starting salary for people who are in the public services on average is 30,000 euro and I’m very conscious that there are many people who are working in the private sector who are paid far less than that.

The new jobs that we have created are better paid and more permanent than they have been in the past but I’m very much aware of the long-term challenges that can be posed to our economic model by the development of the gig economy and I’m alive to the threats that job insecurity can have on people’s standards of living. It’s something that I’m always looking at”.

As to what is the appropriate balance between expenditure increase and tax cuts in the long and short-term…

“I think the model that we’ve used over the last number of years of a two to one split is appropriate for the long-term”.

As to what he would like to be his political legacy…

“I’d like to be seen by the people of Ireland as a Minister for Finance who genuinely tried to make the right decisions for our country, for the long run, to try to continue to improve our public finances, while trying to deal fairly with all of the needs that our society has. As part of that I hope that my efforts to increase investment in the things that can make a difference to our society in the long run and deliver a more competitive economy will be seen by our citizens as real; and that while doing that we can get our public finances into a safer place than they are even now. I’m a person who is as conscious of the needs of our society as I am of those of our economy but I do a job in which I ultimately have to make trade-offs and choices.

For many years commentators and journalists might have seen the Department of Finance and the Department of Public Expenditure and Reform as perhaps places that were subject to the influence of very strong interests within our society. For me I want this office and these two departments to be the arena in which we try to protect the interests of our society against competing demands.

And that is what I work day and night to try and do”.

[He also talked about the importance of change in his constituency of Dublin Central]

Michael Smith